Heritage Releases Economic Freedom Report

The Heritage Foundation has released its latest report on economic freedom. We provide the Executive Summary here.

The cumulative downward pressure on the world economy is the product of bad economic policy choices from the coronavirus pandemic period, higher inflation, Russia’s ongoing invasion of Ukraine, and a broader conflict in the Middle East, among other economic and geopolitical tensions.

The abrupt and shortsighted renunciation of the principles of economic freedom in many countries has further risked not only undercutting much-needed stronger economic recovery, but also sacrificing long-term economic resilience and prosperity. Many countries around the world, for example, are already mired in a greater debt burden that prolongs economic stagnation.

A return to business as usual will not suffice. In addition to the impacts of the pandemic on public finances, countries face many long-term structural challenges in the policy areas of transparency, efficiency, openness, and government effectiveness.

More than ever, it should be remembered that a nation’s true capacity for lasting growth and prosperity hinges on the quality of its institutions and economic system. Many nations around the globe are now at a crossroads. The question is whether they will recognize the paramount need to correct the current policy course and reinvigorate their commitment to preserving and advancing economic freedom, which has proven to be crucial to human flourishing and the achievement of real progress.

KEY FINDINGS OF THE 2024 INDEX OF ECONOMIC FREEDOM

The 2024 Index, which considers economic policies and conditions in 184 sovereign countries from July 1, 2022, through June 30, 2023, reveals a world economy that, taken as a whole, is “mostly unfree.” Regrettably, the global average score for economic freedom has fallen further from the previous year’s 59.3 and is now the lowest it has been since 2001: only 58.6.
Globally, fiscal soundness has deteriorated significantly. Rising deficits and mounting public debt in many countries have undermined and will likely further undercut their overall productivity growth and ultimately lead to economic sluggishness rather than vibrant growth.
Despite the notable downturn in global economic freedom, there continues to be a clear relationship between improved economic freedom and improved economic dynamism as well as greater overall well-being. No matter what their existing level of development may be, countries can measurably boost their economic growth by implementing policies that reduce taxes, rationalize the regulatory environment, open the economy to greater competition, and fight corruption, all of which will also help to advance their overall economic freedom.
The standard of living, measured by incomes per capita, is much higher in economically freer countries. Countries rated “free,” “mostly free,” or “moderately free” in the 2024 Index generate incomes that are more than double the average levels in other countries and more than three times higher than the incomes of people living in economically “repressed” countries.
As documented once again in the 2024 Index, economic freedom also correlates significantly with overall well-being, which includes such factors as health, education, the environment, innovation, societal progress, and democratic governance.
As shown in the ranking table below, only four countries (down from seven in the 2022 Index) recorded economic freedom scores of 80 or more, putting them in the ranks of the economically “free;” 22 countries earned a designation of “mostly free” by recording scores of 70.0 to 79.9; and an additional 55 countries were considered at least “moderately free” with scores of 60.0 to 69.9. Thus, a total of 81 countries, or slightly less than half of the 176 countries graded in the 2024 Index, have institutional environments in which individuals and private enterprises benefit from at least a moderate degree of economic freedom in the pursuit of greater economic development and prosperity.
On the opposite side of the spectrum, more than 50 percent of the countries graded in the 2024 Index (95 economies) have registered economic freedom scores below 60. Of those, 62 are considered “mostly unfree” (scores of 50.0 to 59.9), and 33, including China and Iran, are in the economically “repressed” category.
Within the top 10 rankings, a notable reshuffling has taken place. Singapore has maintained its status as the world’s freest economy, demonstrating a high level of economic resilience. Switzerland is the world’s second freest economy, followed by Ireland, and Taiwan has moved up to the fourth slot, the highest rank the country has ever achieved in the Index of Economic Freedom. Both New Zealand and Australia have lost their top-tier economic freedom status, with Australia no longer among the world’s 10 freest economies.
Especially notable is the continuing decline within the “mostly free” category of the United States, whose score plummeted to 70.1, its lowest level ever in the 30-year history of the Index. The U.S. is now the world’s 25th freest economy. The major causative factor in the erosion of America’s economic freedom is excessive government spending, which has resulted in mounting deficit and debt burdens.

All in all, the ongoing recovery remains uneven and uncertain with strikingly different outcomes across countries, sectors, and demographic groups. Output and employment gaps remain in many countries, particularly in emerging markets and developing economies, suggesting that countries face vastly different policy challenges during recovery and beyond.

Quick Analysis

China’s Tech Targets

Chinese technology is changing and its leadership is using it, along with espionage, to challenge the West in a number of critical areas. The United States is only one of its targets. Previously, Beijing’s spies primarily sought Western technologies as a way to skip generations of develop cost and time to modernize its economy. Today, its acquisition of advanced technologies, and now also its indigenous development, makes the communist giant a threat to freedom-loving people everywhere. This week Nan Mulchandani, the CIA’s chief technology officer, said Director William Burns is preparing for an “infinite race” with Beijing for artificial intelligence and advanced technologies. He argues the US must pivot toward providing American spies with the latest transformative technologies to outcompete China. Mulchandani says this means updating everything the agency does “from operations to the analytic function, support functions and other piece there.” America, he suggests, needs to alter its thinking toward viewing this not as a race with a finite end point, but as an ongoing competition. Mr. Mulchandani predicted that the next area of competition would “be primarily a software war that is powered by something like AI” rather than hardware fueled by software. That competition, however, is not confined to simply acquiring critical technologies for use in the future. China is also challenging the US in space. China announced today it launched a groundbreaking mission to retrieve samples from the far side of the moon. The space capsule will arrive in four days and collect 4.4 pounds of moon rocks and regolith, or moon dirt. Beijing’s desire to one day become a space power and scientific force is for pragmatic purposes in 2024 a fait accompli. Rep. Frank Lucas (R-Okla.), chairman of the House Science, Space and Technology Committee, said during a NASA budget hearing this week, that “while the US remains the global leader in space exploration, we face increasing challenges internationally.” Referring to China’s space station, Lucas said: “We cannot allow China to become the front-runner in space exploration… There are too many consequences for our competitiveness, our national security, and our continued ability to explore space.” A new report released this week by the Center for Strategic and International Studies (CSIS) says that the United States, to further its geopolitical interests and maintain a strong domestic economy, must approach every aspect of economic and trade policy through the lens of global technology competition. The Biden Administration’s approach, it says, discounts the landscape of competition between China and the US and may “jeopardize US advancements in emerging technologies… which could cede the advantage to China….” In particular, the report recommends that the US take action now because quantum and artificial intelligence (AI) need a federal policy to ensure the country can spur the entrepreneurship and R&D efforts foundational to the strength of the technology sector. As China’s Communist Party (CCP) becomes more hostile to the United States and other Western nations, its aggressive activities abroad expand and intensify. Chinese spy cases far outnumber those of Russia and every other nation. CSIS reports that since President Xi took over in 2012 there have been 224 incidents of spying. Estimates of the long -term economic, scientific, and national security cost to the US run into the billions and have “created immeasurable damage to national security with the theft of weapons technology, including nuclear weapons test data… China has added the theft of massive quantities of personal information, political coercion, and influence operations, to its espionage activities.” The CSIS reports says that 49% of incidents of spying in the US directly involved Chinese military or government employees, with private Chinese citizens accounted for 41%. In 29% of the espionage cases the person involved was attempting to acquire military technology, while in 54% of the incidents it was related to commercial technologies. Almost half of the cases involved cyber espionage, usually by state—affiliated actors. No matter where one turns today China is challenging the West, from the depths of our oceans to outer space. The United States cannot count on China to be a good global citizen and refrain from attempting to enforce its vision of world order with Beijing at the apex. The time is growing short for the West to take action. Daria Novak served in the U.S. State Dept.